Sunday, December 28, 2008
Friday, December 26, 2008
Thursday, December 25, 2008
Monday, December 22, 2008
Prehistoric Shark and other weird sea creatures
There is indeed a lot we still do not know about our dear planet...
Fish found on the beach after tsunami
Deep-sea anglers
Fish with elbows and other weird "fish"
Worm or snake..you decide..
Starfish?
Tuesday, December 16, 2008
Friday, December 12, 2008
Monday, December 08, 2008
Saturday, December 06, 2008
Monday, December 01, 2008
Evolved virtual creatures~
By sheer chance i came across this book "Origin of Wealth" in the library and decided to give it a try...what a great find! I won't spoil it for the potential readers...but think economics+evolution+complex systems...came across some really cool research...check out the following:
"Sugerscape" - an 'artificially intelligent agent-based social simulation'.
And this video from Karl Sim's research on evolved virtual creatures...
"Sugerscape" - an 'artificially intelligent agent-based social simulation'.
And this video from Karl Sim's research on evolved virtual creatures...
Wednesday, November 26, 2008
Monday, November 24, 2008
Sunday, November 23, 2008
Monday, November 10, 2008
Monday, October 27, 2008
Wednesday, October 22, 2008
Sunday, October 19, 2008
Days of Glory - Indigènes
It's been a while since I last saw a movie that really move me...Indigènes is such a movie...there is so much injustice!!! understand that the French government has resumed paying colonial pension payments again after more than 40 yrs...albeit without back payment...40 yrs!!!sigh...
Friday, October 17, 2008
Recent thoughts on crisis
"If you jump off the top of an 80-story building, for 79 stories you can actually think you're flying. It's the sudden stop at the end that always gets you." - Thomas Friedman on the financial crisis, 15 Oct 2008
On explaining the credit crisis:
It feels surreal to watch as events unfold in the financial world over the past year. In a way, I feel fortunate to be back from studies just in time to start work during arguably the best year (thus far) for the company before experiencing what is now deemed as the worst financial crisis since the Great Depression. The contrast makes the experience all the more startling. I remember taking this US economic history class in college and feeling quite detached from the course material which was describing a world based on gold standard and a worsening depression due to the monetary expansion in the earlier years in 1920's and subsequent inaction of the central bank. I find it hard to comprehend without a reference or anchor to a modern day equivalence which I can relate to. (Un)fortunately, I guess I'm living through such a transition. It really hit home the idea that this is truly a crisis when I was passing through an AIA branch, after the announcement of the Fed's US$85 bil loan to AIG, where throngs of folks (mostly moms and pops) were crowding around, waiting to surrender their insurance plans. In fact, my parents were considering seriously to join in the line as well. Not a bank run yet, but certainly feels like one!
I suppose it's easier to watch on the sideline when I have nothing substantial at stake, in terms of direct personal wealth exposure, to begin with (that is until last week when I finally bought the first stock in my life). That way, I don't have the mental bias and the psychological angst when I am looking at say the widening TED spread or the plunging stock indexes. Being afforded this by-stander privilege, it has become rather "entertaining" to begin reading all the "special reports" that are making the rounds in magazines and newspapers, which inevitably make comparisons with past bear markets and attempt to provide a coherent "ex-post" explanation to the current crisis. Most of them "sound" quite reasonable, in fact probably too much so! It won't be very hard to imagine the Economist producing an equally eloquent editorial describing the success of the earlier bailout measures in rescuing the financial markets, versus what they are now reporting in their latest issue, proclaiming vague-and-hence-non-debatable terms like "there is certainly progress, but it is certainly not enough". Indeed there'd always be a theory that can fit past data, and because such theory provides a "coherent" framework that can explain "intelligently" our past experience, many of us will take that as a confirmation of the theory, without realizing that this theory surfaces (or resurfaces) because of what had happened. This self-referencing mechanism, coupled with our innate preference for confirmation instead of anti-evidence and our gullibility in the face of narrative fallacy, makes me very very hesitant to venture another "intelligent" version of how we got here.
For now, I'd say that I buy the Austrian school view, that credit expansion fueled by the loose monetary policies, and the many levels of conflict of interest in the financial-related institutions (for instance, it's in the interest of rating agencies to maintain an overall healthy expectations of new innovative products such as CDOs) causes the spiraling effects of businesses misjudging the ultimate consumers' time preference (which supposedly should have been reflected in the interest rate, except in this case central banks in a fiat money world can "target" that rate) and in turn making misguided investment decisions....blah blah blah. Seriously, looking back, it all seems so logical.
Most people recognize that "hindsight is 20/20", but not that many see the other dimension of prediction: forecasting backward can be as difficult as forecasting forward! Put it differently, say given the present situation that "S&P500 has nosedived ~40% this year", what could have been the previous happenings that lead up to such an outcome today? Possible worlds exist, and can be interpreted in both time directions! At the risk of appearing overly philosophical (which some might equate as impractical), I'd stress that whatever explanations that we give ourselves today of this credit crisis, we should take it with a much bigger pinch of salt than what is being presented in the press today and probably ingrained in our brains eventually. In the Karl Popper's tradition, (translated in Nassim Taleb's words) "you know what is wrong with a lot more confidence than you know what is right". Especially in cases where the variables are (to quote Taleb again) from Extremistan (eg. most econometric data such as interest rate or inflation really have no theoretical upper or lower limits; just ask the folks from Zimbabwe), the potential impact from a misjudgment of probability could be huge. Adding on top our uncanny ability to mistaken "known unknown" probability (like the probability of hitting straight 6s when rolling dice) for "unknown unknown" probability (like the probability of me marrying my wife), we have to be much more humble in our own ability to forecast or predict economic trend than the level of confidence that seems to be exuded by reports or articles (often written eloquently by economists, journalists or academics).
On a company's intrinsic value:
Having presented such a grim picture that luck seems to play such an important role in our own destiny, I'd say though that there're still many components in life that are consistent and fundamental; with variables that are from Mediocristan land where application of Gaussian distributions actually makes sense. Even for parameters that are scalable with no inherent limitation (think stock prices), there're ways to protect and even gain exorbitantly (think writing put or call options) from the occurrence of a "outlier".
Incidentally, as I was half-way reading through Black Swan, I started reading up on Benjamin Graham's Intelligent Investor, at the suggestion of a buddy of mine. Graham's description of Mr Market seems to me the perfect analogy of Nassim's idea of preparing for a Black Swan. Sometimes, Mr Market may come around with a ridiculously low price for selling his stock, an obvious outlier compared to recent "trends" (which is something we're witnessing today). But how do we know that the price is low enough? This requires a comparison with a reference point (ideally at a high margin of safety), a level which many value investors have come to call a firm's intrinsic value.
I was quite fascinated by the ideas in Graham's book and started digging through writings by Warren Buffett, Graham's most famous disciple. There're certainly numerous ways to analyze a company, and coming up with a company's intrinsic value is at best a wild guess. I won't even regard the endeavor an intelligent undertaking because that'd give it a false sense of certainty (which is why Graham emphasize so much on margin of safety). However, such a guess can be made with much higher level of confidence if given more relevant information.
Which leads me to this following thought: every company's management should be regularly evaluating the company's intrinsic worth. Compared to shareholders or external analysts, the management always (at least for a well-functioning organization) has the most up-to-date info about many aspects of the company. With that intimate knowledge, the "internal analyst" will be able to arrive at an estimate of the firm's intrinsic worth with a fairly high confidence level (not to mention that the enormous exercise could also potentially be a great "learning journey" for management to really think through the various risk elements in the company and where true value lies). Only when armed with a sense of such an estimate would a firm be able to analyze and justify the benefits to the shareholders its use of share repurchase, issuance of stock options (for employees or in lieu of management fees or to raise capital) and using its stock in a M&A situation. Perhaps more importantly, a focus on increasing intrinsic worth (which is fundamentally a long-term concept) will draw true investors instead of speculators as shareholders. By providing the information necessary for shareholders to evaluate the intrinsic worth of the company (this could mean reporting financial statements as per accounting standards but showing the appropriate adjustments in the management discussion section for better reflection of economic reality just as the "internal analyst" would), this will give rise to a natural selection of like-minded investors as shareholders such that the market price will mostly trade on parity with the firm's intrinsic worth. This way, shareholders stand to gain from the long-term success of the company, instead of gaining at the expense of another fellow partner in the business (ie. the new shareholder).
On "Mismatch" problem and fair value accounting:
I can understand why this is seldom practiced (Berkshire's Hathaway's annual report being a noted exception) in reality. Gathering the necessary info for reliable analysis may be an extremely laborious and complex endeavor (pity the guy given the job analyzing a behemoth like AIG) and in a setting where management live and die for the next quarter's earnings, it could be a wasted effort which speculators (disguised as shareholders) may not appreciate (especially when this work against their trade directions). But more importantly, I suspect the reason this is usually not on the management's agenda is because of the inherent fuzziness of the concept of intrinsic worth. The exercise itself is highly subjective; even Buffett readily admits that his view often differ from Charlie Munger's (Buffett's alter ego at Berkshire) when given the same set of company data.
Indeed, what cannot be measured with certainty will often be deemed useless. This in turn leads to the deception of confidence when we are presented with evidence that seems measured with certainty. This is the "mismatch" problem that I wrote at length previously. The Michael Jordans who initially fail NBA draft tests, the kids who fail SAT who go on to publish breakthrough papers etc. Recently, I came across 2 other such incidences that highlight the darker side of such reliance on "tests".
One was the milk scandal in China. Evidently, melamine was added intentionally to give a higher score during protein testing! An over-reliance on standardize test to examine level of protein ends up with thousands of children with failed kidneys! This really saddens me and serves as a powerful reminder that our innate inclination for binary decision (yes-this-is-safe/no-this-is-dangerous) can lead to disastrous consequences.
I also see parallels with the recent fervent debate on fair value accounting. Banks are arguing for a suspension or "flexible" interpretation of the business of marking to market its assets. (Funny they never bring this up during the good times when they keep "marking up".) Many forget that the role of accounting is to provide a means to "record" a company's current standing, based on a highly arbitrary set of rules. It is a means, but certainly not the ends! Actually, I am totally fine whether the accounting community chooses to adopt mark-to-market or cost-based or held-to-maturity methodologies (so long I know what rules they're using) because in the end, how the numbers are recorded have very little to do with how the company is doing fundamentally. What they're arguing about is like a book publisher deciding whether the best way to present a book is by either its front cover or back cover, when really both are just snapshots of the same book. What truly matters is the book's content, which takes time and effort to digest and it's entirely possible that you still will only have a vague idea of the concepts written in the book. Making mechanical decision to say dump a stock because a certain ratio calculated from the accounting statements drop below a certain threshold is akin to judging a book by its cover; you cannot have good judgment consistently unless you've done the tedious work of evaluating the firm's intrinsic worth, however flaky this practice may seem.
Once again, some wise men out there sums it up much better than I ever could. In this case, Warren Buffett gave the following insight: "I'd rather be approximately right than precisely wrong." How true!
PS: It feels great that the company's library has finally come online! It's been over a year since I first had the idea of having a "click-and-you-shall-receive_on-your-desk" library system. I must confess I really did not do much (the company college and IT did all the work; all I did was talk) but I'm glad that the books in the library will finally see some "action"! (Btw, I would treat books like land if I'm an accountant. They should not be depreciated! This should in my opinion reflect the real economic reality.)
On explaining the credit crisis:
It feels surreal to watch as events unfold in the financial world over the past year. In a way, I feel fortunate to be back from studies just in time to start work during arguably the best year (thus far) for the company before experiencing what is now deemed as the worst financial crisis since the Great Depression. The contrast makes the experience all the more startling. I remember taking this US economic history class in college and feeling quite detached from the course material which was describing a world based on gold standard and a worsening depression due to the monetary expansion in the earlier years in 1920's and subsequent inaction of the central bank. I find it hard to comprehend without a reference or anchor to a modern day equivalence which I can relate to. (Un)fortunately, I guess I'm living through such a transition. It really hit home the idea that this is truly a crisis when I was passing through an AIA branch, after the announcement of the Fed's US$85 bil loan to AIG, where throngs of folks (mostly moms and pops) were crowding around, waiting to surrender their insurance plans. In fact, my parents were considering seriously to join in the line as well. Not a bank run yet, but certainly feels like one!
I suppose it's easier to watch on the sideline when I have nothing substantial at stake, in terms of direct personal wealth exposure, to begin with (that is until last week when I finally bought the first stock in my life). That way, I don't have the mental bias and the psychological angst when I am looking at say the widening TED spread or the plunging stock indexes. Being afforded this by-stander privilege, it has become rather "entertaining" to begin reading all the "special reports" that are making the rounds in magazines and newspapers, which inevitably make comparisons with past bear markets and attempt to provide a coherent "ex-post" explanation to the current crisis. Most of them "sound" quite reasonable, in fact probably too much so! It won't be very hard to imagine the Economist producing an equally eloquent editorial describing the success of the earlier bailout measures in rescuing the financial markets, versus what they are now reporting in their latest issue, proclaiming vague-and-hence-non-debatable terms like "there is certainly progress, but it is certainly not enough". Indeed there'd always be a theory that can fit past data, and because such theory provides a "coherent" framework that can explain "intelligently" our past experience, many of us will take that as a confirmation of the theory, without realizing that this theory surfaces (or resurfaces) because of what had happened. This self-referencing mechanism, coupled with our innate preference for confirmation instead of anti-evidence and our gullibility in the face of narrative fallacy, makes me very very hesitant to venture another "intelligent" version of how we got here.
For now, I'd say that I buy the Austrian school view, that credit expansion fueled by the loose monetary policies, and the many levels of conflict of interest in the financial-related institutions (for instance, it's in the interest of rating agencies to maintain an overall healthy expectations of new innovative products such as CDOs) causes the spiraling effects of businesses misjudging the ultimate consumers' time preference (which supposedly should have been reflected in the interest rate, except in this case central banks in a fiat money world can "target" that rate) and in turn making misguided investment decisions....blah blah blah. Seriously, looking back, it all seems so logical.
Most people recognize that "hindsight is 20/20", but not that many see the other dimension of prediction: forecasting backward can be as difficult as forecasting forward! Put it differently, say given the present situation that "S&P500 has nosedived ~40% this year", what could have been the previous happenings that lead up to such an outcome today? Possible worlds exist, and can be interpreted in both time directions! At the risk of appearing overly philosophical (which some might equate as impractical), I'd stress that whatever explanations that we give ourselves today of this credit crisis, we should take it with a much bigger pinch of salt than what is being presented in the press today and probably ingrained in our brains eventually. In the Karl Popper's tradition, (translated in Nassim Taleb's words) "you know what is wrong with a lot more confidence than you know what is right". Especially in cases where the variables are (to quote Taleb again) from Extremistan (eg. most econometric data such as interest rate or inflation really have no theoretical upper or lower limits; just ask the folks from Zimbabwe), the potential impact from a misjudgment of probability could be huge. Adding on top our uncanny ability to mistaken "known unknown" probability (like the probability of hitting straight 6s when rolling dice) for "unknown unknown" probability (like the probability of me marrying my wife), we have to be much more humble in our own ability to forecast or predict economic trend than the level of confidence that seems to be exuded by reports or articles (often written eloquently by economists, journalists or academics).
On a company's intrinsic value:
Having presented such a grim picture that luck seems to play such an important role in our own destiny, I'd say though that there're still many components in life that are consistent and fundamental; with variables that are from Mediocristan land where application of Gaussian distributions actually makes sense. Even for parameters that are scalable with no inherent limitation (think stock prices), there're ways to protect and even gain exorbitantly (think writing put or call options) from the occurrence of a "outlier".
Incidentally, as I was half-way reading through Black Swan, I started reading up on Benjamin Graham's Intelligent Investor, at the suggestion of a buddy of mine. Graham's description of Mr Market seems to me the perfect analogy of Nassim's idea of preparing for a Black Swan. Sometimes, Mr Market may come around with a ridiculously low price for selling his stock, an obvious outlier compared to recent "trends" (which is something we're witnessing today). But how do we know that the price is low enough? This requires a comparison with a reference point (ideally at a high margin of safety), a level which many value investors have come to call a firm's intrinsic value.
I was quite fascinated by the ideas in Graham's book and started digging through writings by Warren Buffett, Graham's most famous disciple. There're certainly numerous ways to analyze a company, and coming up with a company's intrinsic value is at best a wild guess. I won't even regard the endeavor an intelligent undertaking because that'd give it a false sense of certainty (which is why Graham emphasize so much on margin of safety). However, such a guess can be made with much higher level of confidence if given more relevant information.
Which leads me to this following thought: every company's management should be regularly evaluating the company's intrinsic worth. Compared to shareholders or external analysts, the management always (at least for a well-functioning organization) has the most up-to-date info about many aspects of the company. With that intimate knowledge, the "internal analyst" will be able to arrive at an estimate of the firm's intrinsic worth with a fairly high confidence level (not to mention that the enormous exercise could also potentially be a great "learning journey" for management to really think through the various risk elements in the company and where true value lies). Only when armed with a sense of such an estimate would a firm be able to analyze and justify the benefits to the shareholders its use of share repurchase, issuance of stock options (for employees or in lieu of management fees or to raise capital) and using its stock in a M&A situation. Perhaps more importantly, a focus on increasing intrinsic worth (which is fundamentally a long-term concept) will draw true investors instead of speculators as shareholders. By providing the information necessary for shareholders to evaluate the intrinsic worth of the company (this could mean reporting financial statements as per accounting standards but showing the appropriate adjustments in the management discussion section for better reflection of economic reality just as the "internal analyst" would), this will give rise to a natural selection of like-minded investors as shareholders such that the market price will mostly trade on parity with the firm's intrinsic worth. This way, shareholders stand to gain from the long-term success of the company, instead of gaining at the expense of another fellow partner in the business (ie. the new shareholder).
On "Mismatch" problem and fair value accounting:
I can understand why this is seldom practiced (Berkshire's Hathaway's annual report being a noted exception) in reality. Gathering the necessary info for reliable analysis may be an extremely laborious and complex endeavor (pity the guy given the job analyzing a behemoth like AIG) and in a setting where management live and die for the next quarter's earnings, it could be a wasted effort which speculators (disguised as shareholders) may not appreciate (especially when this work against their trade directions). But more importantly, I suspect the reason this is usually not on the management's agenda is because of the inherent fuzziness of the concept of intrinsic worth. The exercise itself is highly subjective; even Buffett readily admits that his view often differ from Charlie Munger's (Buffett's alter ego at Berkshire) when given the same set of company data.
Indeed, what cannot be measured with certainty will often be deemed useless. This in turn leads to the deception of confidence when we are presented with evidence that seems measured with certainty. This is the "mismatch" problem that I wrote at length previously. The Michael Jordans who initially fail NBA draft tests, the kids who fail SAT who go on to publish breakthrough papers etc. Recently, I came across 2 other such incidences that highlight the darker side of such reliance on "tests".
One was the milk scandal in China. Evidently, melamine was added intentionally to give a higher score during protein testing! An over-reliance on standardize test to examine level of protein ends up with thousands of children with failed kidneys! This really saddens me and serves as a powerful reminder that our innate inclination for binary decision (yes-this-is-safe/no-this-is-dangerous) can lead to disastrous consequences.
I also see parallels with the recent fervent debate on fair value accounting. Banks are arguing for a suspension or "flexible" interpretation of the business of marking to market its assets. (Funny they never bring this up during the good times when they keep "marking up".) Many forget that the role of accounting is to provide a means to "record" a company's current standing, based on a highly arbitrary set of rules. It is a means, but certainly not the ends! Actually, I am totally fine whether the accounting community chooses to adopt mark-to-market or cost-based or held-to-maturity methodologies (so long I know what rules they're using) because in the end, how the numbers are recorded have very little to do with how the company is doing fundamentally. What they're arguing about is like a book publisher deciding whether the best way to present a book is by either its front cover or back cover, when really both are just snapshots of the same book. What truly matters is the book's content, which takes time and effort to digest and it's entirely possible that you still will only have a vague idea of the concepts written in the book. Making mechanical decision to say dump a stock because a certain ratio calculated from the accounting statements drop below a certain threshold is akin to judging a book by its cover; you cannot have good judgment consistently unless you've done the tedious work of evaluating the firm's intrinsic worth, however flaky this practice may seem.
Once again, some wise men out there sums it up much better than I ever could. In this case, Warren Buffett gave the following insight: "I'd rather be approximately right than precisely wrong." How true!
PS: It feels great that the company's library has finally come online! It's been over a year since I first had the idea of having a "click-and-you-shall-receive_on-your-desk" library system. I must confess I really did not do much (the company college and IT did all the work; all I did was talk) but I'm glad that the books in the library will finally see some "action"! (Btw, I would treat books like land if I'm an accountant. They should not be depreciated! This should in my opinion reflect the real economic reality.)
Tuesday, October 14, 2008
Wednesday, October 08, 2008
I will Derive!!!
Saw this on my younger bro's blog...this is some ridiculously funny shit...probably more funny when you're studying for your A or O-level...
Monday, October 06, 2008
Warren Buffett: My New Hero
Thanks to my buddy Mark Liew, who sent me this books list of his favorite investment/business books, I finally got to really learn about the "Oracle of Omaha". I started with "Value Investing", and then "Intelligent Investor" (written by Buffett's mentor Benjamin Graham) and finally "Essays of Warren Buffett". There's so much wisdom in these few books I think I'd most definitely have to re-read them again to fully grasp the ideas in them. I've also started reading through Berkshire Hathaway's annual letters to shareholders, starting from 2007 and going backwards...my goal is to finish reading every single one available on the website in a year's time (considering i have another dozen of books on my to-read list)...anyway, here're some videos of the great man himself in the charlie rose show:
Tuesday, September 30, 2008
Monday, September 29, 2008
I am a (lucky) mind-wonderer...
Yesterday, I had 2 dates...a lunch+coffee with Marcus & Mark Liew (who came back from the States for a short trip)....followed by a dinner+F1-watching with Francis (Big Foot) and his bro Dominic (who recently came back from an exchange in Italy)...
It's always interesting to meet with old friends and talk about the old times...guess it's good to be nostalgic once in a while...it doesn't feel that long ago when I'd drop by Francis place to jam some blues, write some songs and belt out Bon Jovi to the top of our voices...it certainly seems like just a while back when I was digging trenches with Marcus & co while Mark was still sound asleep in his trench when the "enemies" start attacking our knoll...man those are good times!
but time is relentless...I'm already 28 this yr, pushing 30...and by some measures (as well as my own projection), i've already lived half of my life, and possibly the more energetic half...
talking to these guys make me think back on the dreams i (or we) used to have...i used to think i'd become a singer (ie. recoding artist)...i'd be like a bob dylan + sam hui combo (in my mind the perfect amalgamation of musical genre)...or I'd run my own asian EBay-like site (every country needs an EBay, so goes my reasoning)...in some ways, i'm still chasing the same dreams...i now sing on the streets (instead of running loop-tracks in a studio) and i'm still thinking of ways to leverage on the internet (hopefully in more ingenious ways than just starting another Singapore EBay copycat)...and over the years, i keep adding to a list of ideas, however wacky and often not as original & revolutionary as I'd have initially thought, and someday, i told myself, i'd act on them...i feel that i owe it to each idea to give it a shot...
now, at 28, the list has grown substantially...and i still relish bombarding my friends on the possibilities of these ideas (and i'm grateful i have some friends who are still willing to play along with my regular lets-go-on-a-what-if-mind-trips)...but as time passes, it dawns on me more and more that I'm just talking...and talk is cheap...
Marcus made a passing comment during our lunch..."dude, actually why are you so unsatisfied? you've got a gd job...you're learning useful things there..." and i agree with him...i'm one of the luckiest guy i know personally...i married my best friend, i've got a great family, i don't really need to worry about making ends meet and paying mortgage (not yet), and i've got my music...indeed there're really many things i should be thankful for...
And then a while later, when we're passing through Borders...i heard him saying "it's a wonder there're so many books out there that you can read...and probably you'd become so much smarter after you read all these books"...i guess he answered his own question to me earlier on...indeed we have sld be grateful for the many things we have now, be it knowledge, experience, love etc...but there are always something more you can gain to further enrich yourself...i think i've blogged this "creative tension" concept by Peter Senge a few times before...and this is how i've tried to rationalize this want vs have...
then again, there is the time factor...by my own estimate, i have 10 more yrs to work on my idea list...i'd consider my gd fortune if i have more yrs left after that to continue pursuing these ideas...even if i don't die before that, my other liabilities (such as providing financially for my family) would have proved such a big inertia that it'd be conceivably impossible to start taking that sort of risk at that age...the clocking clickin' and i feel a greater sense of urgency...
fortunately, i find plenty of inspirations around me...mark liew provides the embodiment of living-by-one's-own-rule-&-f**k-the-conventions...marcus reminds me of how to stay incredibly humble with the i-actually-dun't-know-what-i'm-doing mentality while it's apparent that everyday he's becoming more knowledgeable that he already is...francis chose the path of becoming a full-time artist, devoting his time/energy to expressing his ideas through his creations and placing his faith in his works rather than the dollar note...actually the list goes on and on...i must thank God for giving me the opportunities to make contact with so many marvelous people, from whom, I'm sure, I'd continue to learn a lot from...i guess this has to be one of the few aspects of my life where I'm not really itching for more (ie. no creative tension)...indeed, i'm truly blessed to have such fine company to call as my friends...
It's always interesting to meet with old friends and talk about the old times...guess it's good to be nostalgic once in a while...it doesn't feel that long ago when I'd drop by Francis place to jam some blues, write some songs and belt out Bon Jovi to the top of our voices...it certainly seems like just a while back when I was digging trenches with Marcus & co while Mark was still sound asleep in his trench when the "enemies" start attacking our knoll...man those are good times!
but time is relentless...I'm already 28 this yr, pushing 30...and by some measures (as well as my own projection), i've already lived half of my life, and possibly the more energetic half...
talking to these guys make me think back on the dreams i (or we) used to have...i used to think i'd become a singer (ie. recoding artist)...i'd be like a bob dylan + sam hui combo (in my mind the perfect amalgamation of musical genre)...or I'd run my own asian EBay-like site (every country needs an EBay, so goes my reasoning)...in some ways, i'm still chasing the same dreams...i now sing on the streets (instead of running loop-tracks in a studio) and i'm still thinking of ways to leverage on the internet (hopefully in more ingenious ways than just starting another Singapore EBay copycat)...and over the years, i keep adding to a list of ideas, however wacky and often not as original & revolutionary as I'd have initially thought, and someday, i told myself, i'd act on them...i feel that i owe it to each idea to give it a shot...
now, at 28, the list has grown substantially...and i still relish bombarding my friends on the possibilities of these ideas (and i'm grateful i have some friends who are still willing to play along with my regular lets-go-on-a-what-if-mind-trips)...but as time passes, it dawns on me more and more that I'm just talking...and talk is cheap...
Marcus made a passing comment during our lunch..."dude, actually why are you so unsatisfied? you've got a gd job...you're learning useful things there..." and i agree with him...i'm one of the luckiest guy i know personally...i married my best friend, i've got a great family, i don't really need to worry about making ends meet and paying mortgage (not yet), and i've got my music...indeed there're really many things i should be thankful for...
And then a while later, when we're passing through Borders...i heard him saying "it's a wonder there're so many books out there that you can read...and probably you'd become so much smarter after you read all these books"...i guess he answered his own question to me earlier on...indeed we have sld be grateful for the many things we have now, be it knowledge, experience, love etc...but there are always something more you can gain to further enrich yourself...i think i've blogged this "creative tension" concept by Peter Senge a few times before...and this is how i've tried to rationalize this want vs have...
then again, there is the time factor...by my own estimate, i have 10 more yrs to work on my idea list...i'd consider my gd fortune if i have more yrs left after that to continue pursuing these ideas...even if i don't die before that, my other liabilities (such as providing financially for my family) would have proved such a big inertia that it'd be conceivably impossible to start taking that sort of risk at that age...the clocking clickin' and i feel a greater sense of urgency...
fortunately, i find plenty of inspirations around me...mark liew provides the embodiment of living-by-one's-own-rule-&-f**k-the-conventions...marcus reminds me of how to stay incredibly humble with the i-actually-dun't-know-what-i'm-doing mentality while it's apparent that everyday he's becoming more knowledgeable that he already is...francis chose the path of becoming a full-time artist, devoting his time/energy to expressing his ideas through his creations and placing his faith in his works rather than the dollar note...actually the list goes on and on...i must thank God for giving me the opportunities to make contact with so many marvelous people, from whom, I'm sure, I'd continue to learn a lot from...i guess this has to be one of the few aspects of my life where I'm not really itching for more (ie. no creative tension)...indeed, i'm truly blessed to have such fine company to call as my friends...
Tuesday, September 23, 2008
Tuesday, September 09, 2008
How Pixar did it...
Harvard Business Review has a nice article on how Pixar nurtured its creative culture, written by Ed Catmull, Pixar's president.
Thursday, September 04, 2008
Uniquity - Next-generation mashup machine
Ubiquity for Firefox from Aza Raskin on Vimeo.
there are some great ideas here...some of these sld be able to incorporate into the XBRL site...
Monday, September 01, 2008
Wednesday, August 27, 2008
Dennis Kucinich's "powerful" speech
If i were an American, i'd vote him or Ron Paul...didn't know he can give a speech like that!
Tuesday, August 26, 2008
Documentary on Singapore Buskers (I'm featured!!)
Ok well...i'm not on TV ...it's actually a school project done by this group of students from Dunman High School...they happened to choose "Street Artistes" as their topic and chanced upon my music blog online...next thing i knew they were at my place interviewing me..hee...I'm glad that these days there're video projects like this in secondary schools and i hope more young folks here can experiment with film as an outlet of expressing their ideas...
anyhow, there's a big portion of the video with me chatting about my street-singing experience in the States vs in Singapore...even a segment of me debating with my folks (who obviously do not think I should be busking on the streets)...all in all, it was an interesting interview and I really hope that the students who interview will get hooked with filming documentaries and start using it to explore other issues :)
anyhow, there's a big portion of the video with me chatting about my street-singing experience in the States vs in Singapore...even a segment of me debating with my folks (who obviously do not think I should be busking on the streets)...all in all, it was an interesting interview and I really hope that the students who interview will get hooked with filming documentaries and start using it to explore other issues :)
Monday, August 25, 2008
I Met the Walrus!
Let it be..let it be..let it be...let it be...whisper words of wisdom..let it be...
Day-dreaming~
Man, it's not a gd sign that I haven't been blogging at all. I need to consciously maintain this outlet of expression...i need to blog (and day-dream) more often!!
Sunday, August 03, 2008
Friday, July 25, 2008
Thursday, July 24, 2008
It's pouring!
Wow! This is quite intense. Looking out from the office window now...the visibility is so low i can barely see the building across! feels like the whole city is under-water! cool~
Wednesday, July 23, 2008
Recent Thoughts
Last week marks a significant milestone in the project I've been involved with since the beginning of the year; the Fund has finally completed its first closing! It has been an interesting learning experience, made more so as the scope comes in sharp contrast compared to my first posting on the Abu Dhabi project. In any case, it's a good time to reflect on some of the lessons I've learnt, and some of my thoughts arising from this experience. But first, a recap on what I actually did…
My Job in the Fund:
I see my role in the Fund being segregated into 3 primary tasks, namely financial modeling, fund marketing & documentation. While my previous role in GCC was also primarily on financial modeling, the focus this time round was quite different. Firstly, U.A.E. is a tax-free zone, which removes a major consideration in deriving the return. Secondly, the Abu Dhabi project was principally a residential one, whose investment horizon and cashflow profile is starkly different from the income-generating nature of the office, retail, serviced residence & hotel found in the integrated developments of a typical project in the Fund. It is quite fascinating to try to absorb the supply/demand, regulatory and other relevant market information of all these real estate types across the various cities (where the seed assets reside) while at the same time, attempt to pick up the basic economics of these various real estate types. What is the typical Net Leasable Area efficiency of a Grade A office, what is the typical net margin of a well-managed shopping mall, what kind of rental variations can one expect between the ground floor and the 5th floor of the mall and between anchor tenant and "small-time" tenant, how do serviced apartments make its money compared to hotels…a ton of "entry-level" questions like these that keep me engaged when attempting to nail down the assumptions in the model. Finally, after figuring how things might look at the asset level, the model also needs to consolidate the underlying assets to the Fund level, an entirely different ballgame which requires an understanding of how the fund structures would impact the cashflow going upstream to the Fund, how the management fee and carried interest are deducted, how the various exit scenarios might impact the Fund return etc. Overall, the modeling part has been a great learning exercise that appeals to my natural inclination to data-crunching (in fact, I think working out an Excel model is akin to writing a software program!).
While the financial modeling part of the job fits in well with my usual domain, the fund marketing (or specifically, the back-and-forth with the investors) and the legal documentation parts of the job lie squarely outside my comfort zone. Certainly, it helps that the boss is so conversant with her role so mostly I just try my best to observe and learn from the way she handles the investors' requests, the lawyers' comments, our overseas colleagues' feedbacks, the various consultants' advices etc. There're quite a number of moving parts in this project and I've gained a lot just by observing how she tied in the various (and sometime opposing) objectives/ideas from the different parties and steer everyone in the same direction. It's also our great fortune that the legal counsel we engaged possess such high level of work ethics and professionalism that we were able to complete the deal (somewhat) on time. I have to say, though, that I feel inadequate at times trying to catch up with the rest of the team as they jump from one document to the next, while I was still trying to figure out what is a company's "M&A". I am definitely, in the CEO's words, still "growing into the job". I suppose experience does play a big part here. (Incidentally, I asked my boss of her opinion on how many times does one have to go through a project like this to get a hang of legal documentation. Her reply? "Once." I was secretly hoping for an answer like "3 or 4", which is what it'd probably take me to feel confident enough to do what she's doing.)
Reading through the docs, drafts after drafts, was, as aptly as I can put it, a pain in the ass! Nevertheless, it was a great educational process for me, especially since this Fund is a (almost) fully invested fund; I was exposed to S&P agreements beyond the typical Fund docs like PPM. Gradually, I begin to interpret the rationale between each draft version, and develop, albeit far from mastering, some sense of how to sieve out the key commercial points from thousands of lines of legalistic jargon. One side effect from this exercise is that I now have a much higher respect for the law profession; it takes great discipline to digest line after line of convoluted sentences while maintaining the same mental rigor when analyzing every word (Indeed every word counts!...which is what I found out as we debated the use of "and" vs "or" for a few days in one of the clauses!).
Recent thoughts:
There're also a couple of concepts/ideas that arises from my experience with the Fund in one way or another. I still can't quite figure out what to make of most of them, nevertheless I'd like to share some of my thoughts here:
On Fund Management/Track Record/"Mismatch" Problem:
The Fund Management business, an important cornerstone of our business model, is an intriguing industry. The Economist's Special Report in Feb 08 on this peculiar business starts with the following:
"Imagine a business in which other people hand you their money to look after and pay you handsomely for doing so. Even better, your fees go up every year, even if you are hopeless at the job. It sounds perfect."
How we got to today's "universal" standard of "2%/20%" fee structure (for private equity funds) would make for an interesting finance history research paper. What seems clear to me, or anyone who bother working out the math, is that it will be quite difficult for a Fund Manager to lose money. The worst that could happen, is that he loses money for the clients (though it does not necessarily follow that he is a bad Fund Manager at that; in fact Nassim Taleb, author of Black Swan, would argue that some "bad" managers can outperform the market for years) and he is forced to switch career (in other words, no investors want to invest with him any more). Switching profession hardly seems like a big loss compared to the potentially disastrous losses that might have been suffered by the investors. On the other hand, if the market swings his way, or if the particular asset class he's managing suddenly become the hottest thing or if he's really a capable Fund Manager, the potential upside for him (and the relatively small team required to run a fund) is enormous because of the 20% incentive fee. Even if we discount this carried interest component, the 2% annual management fee is also a significant income if the Fund size, from which this 2% is applied, is substantial. Indeed I'd be interested and probably quite surprised to find a similar fee structure for service providers/consultants/managers in any other industry like IT, management consulting, property management etc. According to a Boston Consulting Group survey, the average profit margin for fund managers is a whopping 42%!
This is of course an overly-simplified scenario of the FM business. Fund Manager often has a stake in the Fund, and may include a high watermark in the incentive fee calculation etc, but this lopsided risk/return profile inherent in the fee structure leads to an interesting question, why has there not been an erosion of fund managers' profit margin with all the fierce competition among the managers?
The Economist report suggests that it's because Fund Manager don't compete on price, rather they battle with their so-called track record. Personally, I still can't accept that price is not a consideration for potential investors and if I have to guess, this 2%/20% arrangement will eventually be replaced with something much more palatable to investors when more firms compete on cost leadership (why this fee structure has sustained for even more than a few yrs still eludes me). On the other hand, I completely agree that track record is a major factor for investors (another way to look at it is that firms compete on differentiation, supposedly supported by their track record). In fact, the single most common question, besides those on corporate governance, we've had from investors during their due diligence is regarding our past track record.
I'm not sure if there's any authoritative study on the ability of past track record to predict future performance for private equity real estate funds, but it's a well-known fact that various extensive studies over different time horizons have indicated that there's no statistical correlation between past performance and future performance for mutual funds. However, the habit of investing based on past performance is still as prevalent as ever.
I think this illogical inclination to past track record is another manifestation of a much broader phenomenon, the human kind's innate need for certainty, and nothing is more certain than a number, something concrete, something quantifiable. It might seem a bit ironic for me to say this since I'm somewhat a self-confessed geek with a liking for data manipulation. But over the years, either from my research days in the lab, or more recently from messing around with financial models, data always fall short, for 2 main reasons, 1) it's never detail enough, 2) the data collected seldom lead to any meaningful correlation to the end result in the real world.
A while ago I came across this talk by Malcolm Gladwell at the 2008 New Yorker Conference where he illustrated this "mismatch" problem (2nd reason above) much better than I ever can. He pointed out how various standardized tests were used to sieve out potential future star athletes (either baseball or basketball) in the States and how utterly useless the tests are in predicting future success of the individual players. This is why I've always detested academic grades, and even more so the likes of SAT & aptitude tests which most major corporations require their potential to take these days; the scores have such a low correlation (Alas! Maybe even negative correlation!) to actual performance. (“Flynn Effect”, which states the rise of average IQ test scores over generations observed in most parts of the world, serves as another example of the “mismatch” problem.)
Hence, one should not be surprised to find that I dislike the Singapore education system (at least at the time when I was in it, though I understand there're a lot of efforts to change it these days). I know I benefited much from this system, not because I'm extraordinarily intelligent, rather because I know how to score high in exams. (Sure, plenty with excellent academic records go on to do great things, but the reverse need not be true and I suspect there's much placebo effect at play here.) My younger brother, on the other hand, who by most measures is much more creative than me, struggled in school, because I guess there's no easy way to quantify and hence reward this wacky thing called creativity.
It might seem that I'm digressing, from Fund Management business to investors' reliance on track record, to the "mismatch" problem, but there is an important theme here, with critical implications for people who wish to quantify things to forecast the future, and that, by default, will include almost everyone in business. For instance how does one calculate an IRR for a project? That sounds easy enough, except to me, that figure is never complete without a corresponding distribution that takes into account the probability functions of all the inputs. Then again, calculations like these will most certainly be beyond the reach of most "normal" analysts, and in the end, the statistical confidence level may be so low that will render the figure "useless" in the practical sense. But does it mean we should revert to some sort of "gut feeling" or simplify things to just a few factors? Malcolm Gladwell seems to think so, as he espoused in his book "Blink". I don't think I can make any judgment on this yet, perhaps because I have not been around long enough to develop some sort of "gut feeling" related to doing business, but I suspect there are just some things in life which just can't be simplified to just a few factors.
On Measuring Financial Performance:
I finally took the CFA Level II exam in June. While it was quite a lot of sacrifice for me, and probably more so for my wife, it was definitely time well-spent. For highly technical skills like the ones that the CFA program covers, formal/structured education (vs me reading finance books randomly) is a very efficient way to build up my foundation. The topics covered are very broad, and although real estate investments only receive a short mention, it led me to start really seeing real estate as an asset class, a financial instrument for storage of wealth, for value creation as well as a means for speculation. The course also brings about an awareness of the intricate connection among all the various asset classes, be it equities, fixed income, commodities, real estate etc. Understanding how they interact with the overall global economy is crucial in coming up with any intelligent forecast and course of actions. This will certainly help me interpret the big picture and see where the company fit into the overall landscape. I am definitely still very much an amateur in this, but at least now, I know what I don't know (which is a lot better than not even knowing what I do not know).
Another revelation that I had while studying for the course is that any corporate ambitions defined merely by size, be it Asset size, Asset Under Management size or Profit size, are meaningless unless the target is viewed in relation to the capital used in reaching such expansions. The airlines, the telcos and a century ago, the railways were once the Googles of their era, promising rapid revenue growth. And yet, arguably even more investments had to be injected in order to realize these growths. In the end, it is really the ROIC, the ROE, the ROA that determines whether a business is creating value, or destroying some.
On asking "Why" & "Why not"/Institutional Imperatives/Innovation/Meaning:
A while ago I was asked by one of our IT colleagues to remove the Firefox browser from my laptop. When I asked him why, he replied "this is the company's policy". SOPs, policies, processes are good because it helps orientate collective behavior, serves as a cradle for organizational knowledge retention and improves efficiency. However, when these rules are so institutionalized that people stop questioning why we're following them in the first place, we'd end up like the fool who queue up after a long line simply because there's a long line of people waiting, without knowing what everyone's waiting for. In a similar light, Warren Buffett referred to it as one of the conditions of the "Institutional Imperatives", where "as if governed by Newton's First Law of Motion, an institution will resist any change in its current direction."
I guess asking "why" to someone who's been doing without questioning can be quite the cognitive dissonance and I suspect it can really get on people's nerves when you keep asking them on something which they've made up their mind that this is one aspect of their lives which they're not going to think too much about. I think that's a natural psychological adaptive behavior that people develop as we compartmentalize on what we choose to question on; some choose to ask more, some choose to just do it. For better or for worse, I know I fall into the "can't-stop-asking-why" end of the spectrum. More specifically, I like to ask "why not", and probably spend too much time each day just day-dreaming on "why-not" scenarios.
While this could be a distraction from "real" work and perhaps even at risk of irritating someone else, I would argue that the never-stop-asking-why mentality is crucial for any organization (like ours) that aspires to be a "lasting" institution. There're plenty of examples of corporate tragedies when company keep marching on blindly. The most recent (and quite dramatic at that due to its bad timing) illustration was when ex-Citigroup boss Chuck Prince told reporters right before the current credit crunch starts unfolding that "as long as the music is playing, you've got to get up and dance." Of course, the other side of the coin is the risk of rocking the boat when things are going along just fine.
In the end, this boils down to a delicate act of grooming a culture of asking questions, of generating innovative ideas while maintaining efficiency in the current focus of the organization. At this point I think we can take a cue from one of the world's most innovative companies, Google. Most people know that Google has this scheme where employees are given 20% of their work time to devote to something they're passionate about. This probably sounds like a luxury to most companies. So how does Google turn these into useful services? Eric Schmidt, the CEO, gave this answer "You can do whatever you want as long as you track it." So there goes; they just try it out, measure it, and decide whether to continue with it, if not, move on to the next idea. (Another idea factory, though highly controversial, is Intellectual Ventures (IV), started by ex-Microsoft CTO Nathan Myhrvold. IV does nothing but dream of new inventions and have so far filed hundreds of patents across more than 30 different fields from their regular brainstorming sessions)
In reflection, do we, as an organization, have this culture of constant innovation, of asking "why" and "why not"? Have we considered experimenting with pre-fabricated homes (which Toyota Homes & China Vanke have been working on for a while, probably due to its quality control and fast construction time)? If no, why not? Have we considered venturing into boutique hotels (which economically speaking might work quite like a serviced residence and potentially serve as a testing ground for innovative architectural & environmental tech innovation due to its relatively small scale)? If no, why not? How about something closer to heart: have we considered, on a regular basis, why our group's business model might work in the past and will still work in the future?
To some, these questions might seem too far-fetched from their current position in the organization; after all, how will a low-level executive have the insights or experience to ask something as strategic as the group's overall business plan? Yet, in my opinion, it does not matter whether a person has the capacity currently to fully comprehend the rationale, but the point is to never stop asking why. Someone may respond: why bother asking when chances are that one may not have sufficient "knowledge" to ask the "appropriate" questions (and worse still, risk looking foolish in the process)?
The over-arching reason, one that is much more important than a pursuit of a disciplined way of creativity (which I've been advocating in the earlier paragraphs), is that asking "Why" gives rise to meaning! And meaning, when it is one that the individual can relate to, gives rise to passion! This is the key reason why I can't stop asking why. It is because I want to find meaning in my work, which in turn will (hopefully though never for certain if I can't agree with this meaning) translate to passion for my work. I believe this is why our CEO keeps sending out those weekend emails. I suppose he's trying to convey what gives him meaning in his work, and in turn influence us to see meaning in our work as well. I know how it felt to find meaning in my work. There were exactly 2 occasions in the past where I found such passion in what I was doing and they were unforgettable experiences. I am still hopeful I can find that a 3rd time here. That is, ultimately, why I have to keep asking "why".
Disclaimer: A lot of what I wrote on my thoughts are really what they are, just thoughts. I do not pretend to have the expertise to suggest a solution (though I constantly try to arrive at one) to some of my own questions if I currently don't have one. It may sound like I'm just whining and I agree it can seem that way. But I have this desire to share with you what I'm thinking, and if you can think of a good solution to my hypothetical questions then that's great! If not, a great conversation leading from this will be, in itself, a great reward for me.
Some relevant links (if you’re interested):
Malcolm Gladwell’s talk at New Yorker Conference 2008
Economist’s Special Report on the Fund Management industry
Gladwell’s article on Intellectual Ventures
Eric Schmidt’s interview on BusinessWeek
Warren Buffett on Institutional Imperative
My Job in the Fund:
I see my role in the Fund being segregated into 3 primary tasks, namely financial modeling, fund marketing & documentation. While my previous role in GCC was also primarily on financial modeling, the focus this time round was quite different. Firstly, U.A.E. is a tax-free zone, which removes a major consideration in deriving the return. Secondly, the Abu Dhabi project was principally a residential one, whose investment horizon and cashflow profile is starkly different from the income-generating nature of the office, retail, serviced residence & hotel found in the integrated developments of a typical project in the Fund. It is quite fascinating to try to absorb the supply/demand, regulatory and other relevant market information of all these real estate types across the various cities (where the seed assets reside) while at the same time, attempt to pick up the basic economics of these various real estate types. What is the typical Net Leasable Area efficiency of a Grade A office, what is the typical net margin of a well-managed shopping mall, what kind of rental variations can one expect between the ground floor and the 5th floor of the mall and between anchor tenant and "small-time" tenant, how do serviced apartments make its money compared to hotels…a ton of "entry-level" questions like these that keep me engaged when attempting to nail down the assumptions in the model. Finally, after figuring how things might look at the asset level, the model also needs to consolidate the underlying assets to the Fund level, an entirely different ballgame which requires an understanding of how the fund structures would impact the cashflow going upstream to the Fund, how the management fee and carried interest are deducted, how the various exit scenarios might impact the Fund return etc. Overall, the modeling part has been a great learning exercise that appeals to my natural inclination to data-crunching (in fact, I think working out an Excel model is akin to writing a software program!).
While the financial modeling part of the job fits in well with my usual domain, the fund marketing (or specifically, the back-and-forth with the investors) and the legal documentation parts of the job lie squarely outside my comfort zone. Certainly, it helps that the boss is so conversant with her role so mostly I just try my best to observe and learn from the way she handles the investors' requests, the lawyers' comments, our overseas colleagues' feedbacks, the various consultants' advices etc. There're quite a number of moving parts in this project and I've gained a lot just by observing how she tied in the various (and sometime opposing) objectives/ideas from the different parties and steer everyone in the same direction. It's also our great fortune that the legal counsel we engaged possess such high level of work ethics and professionalism that we were able to complete the deal (somewhat) on time. I have to say, though, that I feel inadequate at times trying to catch up with the rest of the team as they jump from one document to the next, while I was still trying to figure out what is a company's "M&A". I am definitely, in the CEO's words, still "growing into the job". I suppose experience does play a big part here. (Incidentally, I asked my boss of her opinion on how many times does one have to go through a project like this to get a hang of legal documentation. Her reply? "Once." I was secretly hoping for an answer like "3 or 4", which is what it'd probably take me to feel confident enough to do what she's doing.)
Reading through the docs, drafts after drafts, was, as aptly as I can put it, a pain in the ass! Nevertheless, it was a great educational process for me, especially since this Fund is a (almost) fully invested fund; I was exposed to S&P agreements beyond the typical Fund docs like PPM. Gradually, I begin to interpret the rationale between each draft version, and develop, albeit far from mastering, some sense of how to sieve out the key commercial points from thousands of lines of legalistic jargon. One side effect from this exercise is that I now have a much higher respect for the law profession; it takes great discipline to digest line after line of convoluted sentences while maintaining the same mental rigor when analyzing every word (Indeed every word counts!...which is what I found out as we debated the use of "and" vs "or" for a few days in one of the clauses!).
Recent thoughts:
There're also a couple of concepts/ideas that arises from my experience with the Fund in one way or another. I still can't quite figure out what to make of most of them, nevertheless I'd like to share some of my thoughts here:
On Fund Management/Track Record/"Mismatch" Problem:
The Fund Management business, an important cornerstone of our business model, is an intriguing industry. The Economist's Special Report in Feb 08 on this peculiar business starts with the following:
"Imagine a business in which other people hand you their money to look after and pay you handsomely for doing so. Even better, your fees go up every year, even if you are hopeless at the job. It sounds perfect."
How we got to today's "universal" standard of "2%/20%" fee structure (for private equity funds) would make for an interesting finance history research paper. What seems clear to me, or anyone who bother working out the math, is that it will be quite difficult for a Fund Manager to lose money. The worst that could happen, is that he loses money for the clients (though it does not necessarily follow that he is a bad Fund Manager at that; in fact Nassim Taleb, author of Black Swan, would argue that some "bad" managers can outperform the market for years) and he is forced to switch career (in other words, no investors want to invest with him any more). Switching profession hardly seems like a big loss compared to the potentially disastrous losses that might have been suffered by the investors. On the other hand, if the market swings his way, or if the particular asset class he's managing suddenly become the hottest thing or if he's really a capable Fund Manager, the potential upside for him (and the relatively small team required to run a fund) is enormous because of the 20% incentive fee. Even if we discount this carried interest component, the 2% annual management fee is also a significant income if the Fund size, from which this 2% is applied, is substantial. Indeed I'd be interested and probably quite surprised to find a similar fee structure for service providers/consultants/managers in any other industry like IT, management consulting, property management etc. According to a Boston Consulting Group survey, the average profit margin for fund managers is a whopping 42%!
This is of course an overly-simplified scenario of the FM business. Fund Manager often has a stake in the Fund, and may include a high watermark in the incentive fee calculation etc, but this lopsided risk/return profile inherent in the fee structure leads to an interesting question, why has there not been an erosion of fund managers' profit margin with all the fierce competition among the managers?
The Economist report suggests that it's because Fund Manager don't compete on price, rather they battle with their so-called track record. Personally, I still can't accept that price is not a consideration for potential investors and if I have to guess, this 2%/20% arrangement will eventually be replaced with something much more palatable to investors when more firms compete on cost leadership (why this fee structure has sustained for even more than a few yrs still eludes me). On the other hand, I completely agree that track record is a major factor for investors (another way to look at it is that firms compete on differentiation, supposedly supported by their track record). In fact, the single most common question, besides those on corporate governance, we've had from investors during their due diligence is regarding our past track record.
I'm not sure if there's any authoritative study on the ability of past track record to predict future performance for private equity real estate funds, but it's a well-known fact that various extensive studies over different time horizons have indicated that there's no statistical correlation between past performance and future performance for mutual funds. However, the habit of investing based on past performance is still as prevalent as ever.
I think this illogical inclination to past track record is another manifestation of a much broader phenomenon, the human kind's innate need for certainty, and nothing is more certain than a number, something concrete, something quantifiable. It might seem a bit ironic for me to say this since I'm somewhat a self-confessed geek with a liking for data manipulation. But over the years, either from my research days in the lab, or more recently from messing around with financial models, data always fall short, for 2 main reasons, 1) it's never detail enough, 2) the data collected seldom lead to any meaningful correlation to the end result in the real world.
A while ago I came across this talk by Malcolm Gladwell at the 2008 New Yorker Conference where he illustrated this "mismatch" problem (2nd reason above) much better than I ever can. He pointed out how various standardized tests were used to sieve out potential future star athletes (either baseball or basketball) in the States and how utterly useless the tests are in predicting future success of the individual players. This is why I've always detested academic grades, and even more so the likes of SAT & aptitude tests which most major corporations require their potential to take these days; the scores have such a low correlation (Alas! Maybe even negative correlation!) to actual performance. (“Flynn Effect”, which states the rise of average IQ test scores over generations observed in most parts of the world, serves as another example of the “mismatch” problem.)
Hence, one should not be surprised to find that I dislike the Singapore education system (at least at the time when I was in it, though I understand there're a lot of efforts to change it these days). I know I benefited much from this system, not because I'm extraordinarily intelligent, rather because I know how to score high in exams. (Sure, plenty with excellent academic records go on to do great things, but the reverse need not be true and I suspect there's much placebo effect at play here.) My younger brother, on the other hand, who by most measures is much more creative than me, struggled in school, because I guess there's no easy way to quantify and hence reward this wacky thing called creativity.
It might seem that I'm digressing, from Fund Management business to investors' reliance on track record, to the "mismatch" problem, but there is an important theme here, with critical implications for people who wish to quantify things to forecast the future, and that, by default, will include almost everyone in business. For instance how does one calculate an IRR for a project? That sounds easy enough, except to me, that figure is never complete without a corresponding distribution that takes into account the probability functions of all the inputs. Then again, calculations like these will most certainly be beyond the reach of most "normal" analysts, and in the end, the statistical confidence level may be so low that will render the figure "useless" in the practical sense. But does it mean we should revert to some sort of "gut feeling" or simplify things to just a few factors? Malcolm Gladwell seems to think so, as he espoused in his book "Blink". I don't think I can make any judgment on this yet, perhaps because I have not been around long enough to develop some sort of "gut feeling" related to doing business, but I suspect there are just some things in life which just can't be simplified to just a few factors.
On Measuring Financial Performance:
I finally took the CFA Level II exam in June. While it was quite a lot of sacrifice for me, and probably more so for my wife, it was definitely time well-spent. For highly technical skills like the ones that the CFA program covers, formal/structured education (vs me reading finance books randomly) is a very efficient way to build up my foundation. The topics covered are very broad, and although real estate investments only receive a short mention, it led me to start really seeing real estate as an asset class, a financial instrument for storage of wealth, for value creation as well as a means for speculation. The course also brings about an awareness of the intricate connection among all the various asset classes, be it equities, fixed income, commodities, real estate etc. Understanding how they interact with the overall global economy is crucial in coming up with any intelligent forecast and course of actions. This will certainly help me interpret the big picture and see where the company fit into the overall landscape. I am definitely still very much an amateur in this, but at least now, I know what I don't know (which is a lot better than not even knowing what I do not know).
Another revelation that I had while studying for the course is that any corporate ambitions defined merely by size, be it Asset size, Asset Under Management size or Profit size, are meaningless unless the target is viewed in relation to the capital used in reaching such expansions. The airlines, the telcos and a century ago, the railways were once the Googles of their era, promising rapid revenue growth. And yet, arguably even more investments had to be injected in order to realize these growths. In the end, it is really the ROIC, the ROE, the ROA that determines whether a business is creating value, or destroying some.
On asking "Why" & "Why not"/Institutional Imperatives/Innovation/Meaning:
A while ago I was asked by one of our IT colleagues to remove the Firefox browser from my laptop. When I asked him why, he replied "this is the company's policy". SOPs, policies, processes are good because it helps orientate collective behavior, serves as a cradle for organizational knowledge retention and improves efficiency. However, when these rules are so institutionalized that people stop questioning why we're following them in the first place, we'd end up like the fool who queue up after a long line simply because there's a long line of people waiting, without knowing what everyone's waiting for. In a similar light, Warren Buffett referred to it as one of the conditions of the "Institutional Imperatives", where "as if governed by Newton's First Law of Motion, an institution will resist any change in its current direction."
I guess asking "why" to someone who's been doing without questioning can be quite the cognitive dissonance and I suspect it can really get on people's nerves when you keep asking them on something which they've made up their mind that this is one aspect of their lives which they're not going to think too much about. I think that's a natural psychological adaptive behavior that people develop as we compartmentalize on what we choose to question on; some choose to ask more, some choose to just do it. For better or for worse, I know I fall into the "can't-stop-asking-why" end of the spectrum. More specifically, I like to ask "why not", and probably spend too much time each day just day-dreaming on "why-not" scenarios.
While this could be a distraction from "real" work and perhaps even at risk of irritating someone else, I would argue that the never-stop-asking-why mentality is crucial for any organization (like ours) that aspires to be a "lasting" institution. There're plenty of examples of corporate tragedies when company keep marching on blindly. The most recent (and quite dramatic at that due to its bad timing) illustration was when ex-Citigroup boss Chuck Prince told reporters right before the current credit crunch starts unfolding that "as long as the music is playing, you've got to get up and dance." Of course, the other side of the coin is the risk of rocking the boat when things are going along just fine.
In the end, this boils down to a delicate act of grooming a culture of asking questions, of generating innovative ideas while maintaining efficiency in the current focus of the organization. At this point I think we can take a cue from one of the world's most innovative companies, Google. Most people know that Google has this scheme where employees are given 20% of their work time to devote to something they're passionate about. This probably sounds like a luxury to most companies. So how does Google turn these into useful services? Eric Schmidt, the CEO, gave this answer "You can do whatever you want as long as you track it." So there goes; they just try it out, measure it, and decide whether to continue with it, if not, move on to the next idea. (Another idea factory, though highly controversial, is Intellectual Ventures (IV), started by ex-Microsoft CTO Nathan Myhrvold. IV does nothing but dream of new inventions and have so far filed hundreds of patents across more than 30 different fields from their regular brainstorming sessions)
In reflection, do we, as an organization, have this culture of constant innovation, of asking "why" and "why not"? Have we considered experimenting with pre-fabricated homes (which Toyota Homes & China Vanke have been working on for a while, probably due to its quality control and fast construction time)? If no, why not? Have we considered venturing into boutique hotels (which economically speaking might work quite like a serviced residence and potentially serve as a testing ground for innovative architectural & environmental tech innovation due to its relatively small scale)? If no, why not? How about something closer to heart: have we considered, on a regular basis, why our group's business model might work in the past and will still work in the future?
To some, these questions might seem too far-fetched from their current position in the organization; after all, how will a low-level executive have the insights or experience to ask something as strategic as the group's overall business plan? Yet, in my opinion, it does not matter whether a person has the capacity currently to fully comprehend the rationale, but the point is to never stop asking why. Someone may respond: why bother asking when chances are that one may not have sufficient "knowledge" to ask the "appropriate" questions (and worse still, risk looking foolish in the process)?
The over-arching reason, one that is much more important than a pursuit of a disciplined way of creativity (which I've been advocating in the earlier paragraphs), is that asking "Why" gives rise to meaning! And meaning, when it is one that the individual can relate to, gives rise to passion! This is the key reason why I can't stop asking why. It is because I want to find meaning in my work, which in turn will (hopefully though never for certain if I can't agree with this meaning) translate to passion for my work. I believe this is why our CEO keeps sending out those weekend emails. I suppose he's trying to convey what gives him meaning in his work, and in turn influence us to see meaning in our work as well. I know how it felt to find meaning in my work. There were exactly 2 occasions in the past where I found such passion in what I was doing and they were unforgettable experiences. I am still hopeful I can find that a 3rd time here. That is, ultimately, why I have to keep asking "why".
Disclaimer: A lot of what I wrote on my thoughts are really what they are, just thoughts. I do not pretend to have the expertise to suggest a solution (though I constantly try to arrive at one) to some of my own questions if I currently don't have one. It may sound like I'm just whining and I agree it can seem that way. But I have this desire to share with you what I'm thinking, and if you can think of a good solution to my hypothetical questions then that's great! If not, a great conversation leading from this will be, in itself, a great reward for me.
Some relevant links (if you’re interested):
Malcolm Gladwell’s talk at New Yorker Conference 2008
Economist’s Special Report on the Fund Management industry
Gladwell’s article on Intellectual Ventures
Eric Schmidt’s interview on BusinessWeek
Warren Buffett on Institutional Imperative
Sunday, July 20, 2008
Ken Robinson's talk on Creativity in schools
I 100% agree with this guy!!! I sincerely hope that someone in MOE would watch this...
Saturday, July 19, 2008
Great talk from Malcolm Gladwell
Somehow, I can find someone who can articulate my points of view much better than I can..and in this case, Malcolm Gladwell explains why I might have reasons to dislike exams/tests in general, though one might make the argument that i have benefited much from being exam-smart vs really being intelligent/insightful..anyway, this is a classic, must-watch! Another one from Malcolm in the same New Yorker conference last year~
Thursday, July 17, 2008
Wednesday, July 09, 2008
"Vincent" in Second Life
One of the most creative video I've seen all year...not sure if it's the poetic lyrics or the Second Life effects...somehow, this moved me to tears...
Thursday, July 03, 2008
Toyota build homes too!
Came across this article on WSJ today...i think modular pre-fabricated housing may have some sustainable advantages in specific scenarios/markets...its construction duration is certainly impressive (which is why Vanke, the biggest real estate developer in China is pursuing it) and could mean a competitive advantage in a rapidly developing market where inventory turnaround could lead to faster recycling of capital...not so sure about the "green" aspect of this idea though....still, an interesting way to think of construction from a more industrial manufacturing perspective...
Tuesday, July 01, 2008
Supermarket of the Future - today!
Some amazing innovation being used in this supermarket in Germany...a Must-Watch video for geeks! (via BBC News)
Friday, June 20, 2008
Augmented Reality in Cell phone
Thursday, June 19, 2008
Code visualization!
code_swarm - Eclipse (short ver.) from Michael Ogawa on Vimeo.
Saw this on FlowingData. Agree with him when he wrote "..one of the many reasons why I love data visualization."
Monday, June 16, 2008
Tall buildings
Not sure how it'd feel like to live/work near the top of these buildings...
Chicago Spire
Burj Dubai
Chicago Spire
Burj Dubai
Thursday, June 05, 2008
Some cool innovations
Came across a few interesting "test-mode" innovations today...
Magenn Power is working on a floating air rotar system....rationale is that wind is a lot stronger higher up in the sky...think one main challenge is that they gotta fix the axis of rotation to fully capitalize on the wind flow (judging from this video):
Another one is this Virtual Cable company that tries to put the Google Map street view thingy right into the windshield of the car...
Magenn Power is working on a floating air rotar system....rationale is that wind is a lot stronger higher up in the sky...think one main challenge is that they gotta fix the axis of rotation to fully capitalize on the wind flow (judging from this video):
Another one is this Virtual Cable company that tries to put the Google Map street view thingy right into the windshield of the car...
WebCam tracking
The video is abit amateurish...but it shows one of the applications similar to the infra-red camera multi-touch videos from Johnny Lee (blogged here)...looks like a new wave of sign language geared for "mid-air" computer interface manipulation is in order...
Wednesday, June 04, 2008
Awesome stunts in GTA IV
Now i'm not a gamer..but still damn cool to watch these stunts in GTA IV...i especially love the flying ones...
Tuesday, June 03, 2008
Killing chicken to eat chicken
Another one of those videos that make me wanna turn vegetarian...explanation from Jamie Olivers
Saturday, May 31, 2008
Bhutan: lost in democracy
Great documentary from CurrentTv! I'd love to travel there to see this "last shangri-la" for myself..
Thursday, May 22, 2008
Photosynth at Microsoft
I actually got to play with Photosynth a while back...i think this technology has huge potential..."creating hyperlink among related pictures" automatically is definitely a leap in technology...i can't see why this can't be applied to "creating hyperlink among related videos" further down the road...imagine a football match where there're hundreds of video footages by professional cameramen or even from spectators taking video from the stand...there'd be one additional dimension (time) to worry about (beyond what they've applied to space right now)...but somehow that seems to me a easier challenge than the one they're solving right...it's a technology worth staying in touch with the progress...
Wednesday, May 21, 2008
Flying Bike with Google Earth
man! all he needs is a bigger LCD display or a projector...still damn cool thou~
Tuesday, May 20, 2008
Cool Google Earth features~
Often times, when I come across another cool new stuff coming from the Google campus (like the one shown above), I'd feel like going to buy Google shares immediately...until i remember that a gd company does not equate gd stock..but still, Google has been consistently innovating...a company i truly admire~
Sunday, May 18, 2008
Interesting Architecture Animations
Ever since I started this job in real estate, I've become exposed to an area of design that has largely been left out of my realm of "known existence" in the past...it helps that my bro, Sam, is studying architecture and started showing me stuff that is truly pleasing to the eye...anyway, here're a few architecture videos I came across...
Museum Plaza by OMA
Dynamic "rotating" building proposed for Dubai
Unfortunately i couldn't find a video of the Kingdom Center in Riyadh, Saudi Arabia...I was fortunate to stay in the Four Seasons there once..truly amazing building..here're some pictures:
Museum Plaza by OMA
Dynamic "rotating" building proposed for Dubai
Unfortunately i couldn't find a video of the Kingdom Center in Riyadh, Saudi Arabia...I was fortunate to stay in the Four Seasons there once..truly amazing building..here're some pictures:
Saturday, May 17, 2008
Microsoft's TouchWall
It's only a matter of time...i predict these sort of multi-wall surface will be all over in malls and in homes in the next few yrs..and its price would only be as expensive as the LCD projector...the infrared sensor/camera should be dirt cheap..i'm excited about the stuff that ppl can use this with...
Thursday, May 15, 2008
Wednesday, May 14, 2008
Thursday, May 08, 2008
Tuesday, May 06, 2008
Saturday, May 03, 2008
Original Song by 11 yr-old
My super-duper coolest dudest of the dudes bro-in-law, NickyRick (you can also find his blog here), wrote his first song called "I saw love in front of me" a while ago...came out with the lyrics and music...all i did was to figure out the chords for him...coolness to the max man!!! yeeeeha!
Friday, April 25, 2008
Well-done by Passion
Great song by this artist called "Passion"...written for his grandma...check out his other vids...he's a great musician!
Thursday, April 24, 2008
Theater-style game
Better than watching ads before a movie in the cinema! though i'd probably still like to watch some movie previews...
Saturday, April 19, 2008
Monday, April 14, 2008
Sunday, April 13, 2008
Strangers (cover)
This used to be one of my favorite songs back in secondary school...this is Rick Price at his best...i hope i did this song justice :)
Sam Hui covers
I really should have done this long time ago...but somehow I always felt i can't sing with the same kind of sincerity as Sam did...anyhow, my girl Tam surprised me recently by bringing me to Sam Hui concert in Singapore...i still love that guy man! so here goes...2 songs here, hopefully many more to come :)
浪子心声:
Such meaningful lyrics!
夜半轻私语
浪子心声:
Such meaningful lyrics!
夜半轻私语
More Jason Mraz
I gotta learn this song man!
Cool rendition of "Billy Jean"
Incidentally I came across Chris Cornell's version of Billy Jean after David Cook covered it in American Idol...pretty cool too
Saturday, April 12, 2008
Brilliant use of Wii remote!
This has gotta be one of the best ideas i've seen this yr! I want to make one myself! Don't know why it took me so long before i found out about this...nevertheless this is super cool!
Minority-report-style sensor
Head-tracking using Wii remote
Low-cost electronic whiteboard! awesome stuff!
Foldable displays!
Thursday, April 10, 2008
Al Gore's new talk!
He talked about "generational mission"...we need a sense of urgency to this true crisis...
Friday, March 28, 2008
Having a dream vs 脚踏实地
Yesterday I had a chance to meet with a senior executive from my company. He was giving us advices and such; one thing really stood out for me was when he emphasized the importance to "not have an inflated ego, especially at your young age".
I couldn't agree more to what he said, and I consistently try to remind myself that 一山还有一山高. At the same time, I can't help but realize the often contradicting "statements of truth" in life. There're plenty of examples regarding this yin and yang of life philosophies. Here's one that I always struggle with: "Jack of all trade, master of none" vs "You can't do sketches enough, Sketch everything and keep your curiosity fresh" (a case of depth of knowledge vs breadth of knowledge). But here I want to talk about this thing about "not having an ego" or I guess more aptly, "脚踏实地" vs " having a big dream".
This senior executive is not the first "mentors" of mine who has advised me, out of good intentions, the importance of having your feet firmly on the ground. Yet, I often feel that true greatness, the kind that really changes the world, comes about because of certain men's willingness to ignore the conventional wisdom or in Google CEO Eric Schmidt words "have a healthy disregard of the impossible".
I always find it an inherently contradicting to be 脚踏实地 while at the same time trying to chase that big dream. It becomes even harder when you try to achieve your ambition without appearing egoistic. The very fact that you have got a big dream would mean you have to be ambitious, which in some context (probably more so in asian mentality) may mean that you "don't know your place".
I try to rationalize this contradiction using what Peter Senge described in his book Fifth Displine (and I thought he explained it very well). He coined the term "creative tension", that driving force that propels you to your dream from where you are now. He envisaged the concept like a rubber band between the dream and current reality. The greater the gap between the 2, the greater the "creative tension". You can have lofty dreams, but without a realistic check of one's current standing, an "inflated ego" would easily close that gap and reduce this "rubber band tension". Hence I always give myself out-sized goals, the kind that I think some people may frown upon as being "over-ambitious"; but at the same time I try to consciously remind myself everyday that I'm still miles and miles away from what I want to achieve in life.
So yes, it's good advice to always keep one's ego in check. But never surrender to conventional wisdom or what others may say "you'd have to wait for your time". Once again, I find that Steve Jobs sums it up much better and with much more authority than me:
"Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary."
I couldn't agree more to what he said, and I consistently try to remind myself that 一山还有一山高. At the same time, I can't help but realize the often contradicting "statements of truth" in life. There're plenty of examples regarding this yin and yang of life philosophies. Here's one that I always struggle with: "Jack of all trade, master of none" vs "You can't do sketches enough, Sketch everything and keep your curiosity fresh" (a case of depth of knowledge vs breadth of knowledge). But here I want to talk about this thing about "not having an ego" or I guess more aptly, "脚踏实地" vs " having a big dream".
This senior executive is not the first "mentors" of mine who has advised me, out of good intentions, the importance of having your feet firmly on the ground. Yet, I often feel that true greatness, the kind that really changes the world, comes about because of certain men's willingness to ignore the conventional wisdom or in Google CEO Eric Schmidt words "have a healthy disregard of the impossible".
I always find it an inherently contradicting to be 脚踏实地 while at the same time trying to chase that big dream. It becomes even harder when you try to achieve your ambition without appearing egoistic. The very fact that you have got a big dream would mean you have to be ambitious, which in some context (probably more so in asian mentality) may mean that you "don't know your place".
I try to rationalize this contradiction using what Peter Senge described in his book Fifth Displine (and I thought he explained it very well). He coined the term "creative tension", that driving force that propels you to your dream from where you are now. He envisaged the concept like a rubber band between the dream and current reality. The greater the gap between the 2, the greater the "creative tension". You can have lofty dreams, but without a realistic check of one's current standing, an "inflated ego" would easily close that gap and reduce this "rubber band tension". Hence I always give myself out-sized goals, the kind that I think some people may frown upon as being "over-ambitious"; but at the same time I try to consciously remind myself everyday that I'm still miles and miles away from what I want to achieve in life.
So yes, it's good advice to always keep one's ego in check. But never surrender to conventional wisdom or what others may say "you'd have to wait for your time". Once again, I find that Steve Jobs sums it up much better and with much more authority than me:
"Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary."
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